It's getting there
Well, I'm very endeared by DIY pixel-sprite flash games; always have been, especially when people pull it off well. Your game was short, and lacking in depth, but I can tell you are capable of making a great game! I'm going to go on to gripe about what I found wrong, and how you can improve, so here we go. :)
Many of the things in this game seemed static (ei the non-changing backgrounds and lifeless characters). While you had variable conversations with other characters availible, these were few. There weren't many items to collect, and the method of collection was linear; in other words: you pick up and item, give it to someone, get an item in return, repeat. The story was also didn't really leave a meaningful impact on the actual gameplay, in other words, because the story lacked meaning, one would not even need it to get through the game.
But all that is okay because you are still practicing.
To solve the graphics issues, I suggest you study regular drawing and other, already established pixel games considered good (pokemon, most stuff on the gameboy, and a lot of stuff on NG). Sprites are hard to make well, and I understand that. Also, try to be a little more consistent with the size of your pixels. Uniform pixels can have a profound impact on the professional feel of your games. Also, always try to be consistent with the coloring, too (for pixel games, mellow, mild colors work best).
Like I said, the characters were mostly invariable; always standing doing nothing. If you could stick the effort and make some animations for them (could be just a little thing that they do, like kicking some dust or fiddling with their hands), it would be sweet. The same goes for the backgrounds and item collection: be creative! :D
Now, the story... Well, the game was so short that the dialogue had no time to leave any impression at all. It felt to me more like a waste of time (I mean that in the nicest possible of ways). I don't know your writing process, but you should sit down, brainstorm quick ideas, jot them down, pick the ones that work, and then finalize them... All to ensure quality. ;-)
I think I covered everything(?)...
As an aside, I'll just point out some things that bugged me.
-Pick a different font for dialogue, and give the text more contrast against the background. I'd suggest a pixel font that you can find on the net
-Use whatever variable that holds the position that the main character is facing, and make it to that you can only talk to someone it you are facing him/her
-Better walk cycle plz? Contact me if you want help with that, I can't provide the links to good tutorials here.
-I noticed that transitioning between rooms is laggy. Look at the transitions a couple times, and you'll know what I mean. Characters float for a split second.
---GRAPHICS
They're good, but need work. See above.
---PLOT
Also needs work. See above.
---SOUND
The music was alright, but I think the game itself could do with some sound effects.
---OVERALL
This was a good game, but the series has a long way to go. I'm confident it'll get there!
Peace.